Auto File-The Big Cost Down

Feb 9 - Joe White Global Autos Correspondent Greetings from the Motor City! Happy Year of the Dragon! And a festive pre-Mardi Gras weekend! If you happen to be in Belgium on Tuesday, head for the Carnival in Binche. You won’t be sorry. The auto industry, however, appears to be cutting past Fat Tuesday and Lunar New Year parades and bracing for a season of belt-tightening. That sound you hear in the background as auto CEOs conduct earnings season calls with analysts is the sharpening of knives (and pencils) for more cost-cutting. The pandemic price bubble is deflating, huge EV investments aren’t paying off and China’s economy is going sideways. There are new signs that U.S. consumers – for so long the wind beneath the industry’s wings - are reaching the limits of the car loan debt they can carry. Tesla, Ford, GM – everyone’s talking about cutting the fat. It's not 2008 all over again. But it’s not 2019, either. We’ll take stock of the uncertain environment, and lots more. Have a great weekend! Laissez les bon temps rouler! Today –

* Tesla’s weight problem

* The U.S. investigates Waymo

* Nissan falls hard Tesla and the new season of austerity Elon Musk signaled to Tesla staffers this week that he’s looking into why the electric vehicle company has 140,000 employees – 31% more workers per dollar of revenue than General Motors. Tesla is structured differently from GM or Ford. Tesla produces more vehicle parts in house, it has energy and solar units, and it owns its dealer, service and charging networks. Legacy automakers outsourced sales and service to franchised dealers a century ago. Still – Tesla’s overhead costs (SG&A) were up 24% in the fourth quarter compared to a year earlier. Revenue increased by just 3.5%. And Musk warned that Tesla does not expect significant growth this year. Those are all leading indicators for a retrenchment – which is part of the cycle for companies that make cars, including Tesla, which likes to present itself as a technology company. Speaking of technology companies, they are laying off staff by the thousands as they reassess the wisdom of pandemic-era hiring sprees. Legacy automakers are squeezing budgets too. The EV capital investment and technology arms race of the past five years has given way to more sober assessments of how much “innovation” mainstream consumers are willing or able to buy.

Ford, for example, dug into the data streaming from connected vehicles and discovered that almost nobody was using an automated parking system that helped execute a parallel parking maneuver. That feature is now off the menu, saving $60 per vehicle – which rolls up to $10 million a year, Ford COO Kumar Galhotra told analysts. A bigger austerity driver for Ford and GM are demands from investors that the Detroit automakers hand them more of the cash being spun up by their combustion truck franchises.

Ford on Tuesday obliged with an 18 cents a share special dividend – a move that helped send the stock up 10% since the start of the week. Gone are the days when automakers boasted about rising “ATPs” – industry shorthand for average transaction prices. The industry is now bracing for prices to downshift. More U.S. consumers are defaulting on hefty car loans taken on during the pandemic years as car prices soared, the New York Fed reported. Read the NY Fed blog post on auto loan trouble here. In the fourth quarter, Tesla’s average revenue per vehicle delivered fell by 18% to $44,505, reflecting the impact of a year of price cutting to keep volumes from contracting. Tesla’s price chopping has had jolting knock-on effects for rival automakers, and big customers such as Hertz that relied on re-selling their used Tesla’s at yesterday's higher prices. No Mardi Gras for the auto business. It’s already Ash Wednesday in the World of Cars. Essential Reading

* A pinch of salt could upend the EV industry

* Paris triples parking fees for SUVs

* Bad climate news will make it hot for automakers Has EV hesitation hit China? Sales of “new energy vehicles” – EVs and hybrids – fell in China last month for the first time since last August. One month does not make for a reliable trend. The January slump could be payback for sales pulled in to December by automakers’ sales promotions. China’s economy overall is wobbly – prices are falling as consumers shut wallets. Still, China’s NEV sector – which includes Tesla - can ill afford a slowdown in growth, given its excess capacity. Beijing is urging Chinese automakers to invest in production abroad to counter trade barriers – copying a page from the playbook Japanese and South Korean automakers used to respond to U.S. protectionism. That makes sense – but what happens to existing NEV factories in China if electrified vehicle growth stalls out? Now Waymo has an accident problem A Waymo robo-taxi clipped a cyclist in San Francisco. The cyclist apparently suffered only scratches and left the scene. Such minor incidents between human-driven cars and cyclists happen every day. But when a robot car is involved, it’s a federal case. The National Highway Traffic Safety Administration is investigating the incident. Waymo reported the incident on the same day that the top lawyer for General Motors, now doubling as caretaker at the Cruise robo-taxi unit, was apologizing for Cruise’s mishandling of a much more serious incident in San Francisco last October. GM told an administrative law judge it was prepared to pay $112,500 to settle the California Public Utilities Commission’s investigation of the failure by Cruise operatives to fully disclose that a Cruise vehicle had dragged a pedestrian down a street after the victim was hit by another car. GM had initially offered to pay a $75,000 penalty. Either amount is trivial to GM. The CPUC’s suspension of Cruise’s license to operate in San Francisco and the resulting layoffs and losses at Cruise are not. Waymo is seeking approval from state regulators to expand its service in Los Angeles and the San Francisco Bay area. The Cruise hearing and Waymo’s scrape illustrate the challenges facing widespread commercial deployment of automated vehicles – obstacles that last week led auto tech supplier Aptiv to throw in the towel on its investments in Motional, a would-be rival to Cruise and Waymo. Nissan takes a tumble Investors dumped shares in Nissan Friday after the company reported disappointing results, sending the automaker’s shares down by 12% - the biggest drop in two decades. The sell-off reflects the reality – obvious for some time – that Nissan is getting squeezed as Chinese automakers grab share in the world’s largest market, and South Korea’s Hyundai and Kia and other brands gain ground in the United States. In China, Nissan’s margins are crumbling as BYD and other domestic brands slash prices. In the United States, Hyundai and Kia last year accounted for 9.8% of U.S. car and light truck sales – solidifying their position as a leading alternative for customers who don’t want a Detroit brand truck or a crossover from Toyota or Honda. Nissan’s U.S. share slid to 4.7%, according to sales data compiled by Automotive News. Nissan and its now-estranged partner Renault are both hitting rough seas as they sail on separate strategic journeys. Renault, whose weakness is fueling merger rumors, closed the week on a positive note. The French champion is close to clinching a deal with China’s Geely to create a combustion engine joint venture. That news comes days after Renault scuttled plans for an IPO of its Ampere EV unit. Uber: Ride services are a business after all Uber turned a full-year profit for the first time since it went public in 2019. Surging demand for rides and delivery services boosted by the post-pandemic recovery in travel converged with stricter cost discipline. After years of effectively offering rides below cost, Uber is cashing in on its dominant scale in key markets, starting with the United States. CEO Dara Khosrowshahi and other executives have scheduled a more detailed strategy briefing for investors on Feb. 14 at 8 AM Eastern time. Uber did not announce plans to return cash to shareholders with a share buyback, which disappointed some investors. But Uber shares have gained 145% since hitting a 52-week low last April. Fast Laps Volkswagen isn’t giving up on plans to bring 25 electric vehicle models from its group of brands to the North American market by 2030, despite the uncertain near-term outlook for U.S. EV sales growth. VW is especially optimistic about the reception for its electric reincarnation of the 1960s micro-bus, the ID. Buzz, which lands in the United States late this year in numbers VW of America head Pablo Di Si expects to be insufficient to meet demand. Penske Automotive offered a revealing take on the health of competing automotive brands and the value of investing in automotive retail. Just 1% of the auto dealership operator’s stores represent Detroit brands, the company said in its Q4 investor presentation. Another point: In 2018, Penske spent $1.50 on capex for every dollar it returned to shareholders via dividends and buybacks. In 2023, that ratio flipped. Penske delivered $1.52 to shareholders for every dollar in capex. LG Chem said it agreed on a $19 billion, 10-year deal to supply EV battery cathodes to General Motors through 2035. The cathodes – enough for 5 million EVs - would come from a new U.S. factory LG plans in Tennessee. LG and GM want to capitalize on U.S. EV battery production subsidies tied to domestic production. Magna and BorgWarner warned investors of slowing growth for 2024 as demand for EV and other technology slows down, and automakers shift investment toward ramping up production of combustion vehicles. Hyundai has picked banks to run a $3 billion IPO for its Indian operations, Reuters reported.

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